Money laundering and the financing of terrorism - European Union Committee Contents

CHAPTER 6: SUMMARY OF CONCLUSIONS AND
RECOMMENDATIONS

The fora for international cooperation

THE FINANCIAL ACTION TASK FORCE
(FATF)

184. We regret that a senior official from the
secretariat of the FATF was not permitted to give us oral evidence
on the organisation and current activities of the FATF. (paragraph
31)

185. Since the Government accept that they are
accountable to Parliament for United Kingdom membership of the
FATF, they should find a more systematic way to report to Parliament
on FATF developments. Written statements after each plenary session
would be a start. (paragraph 32)

COOPERATION AT EU LEVEL

186. Nearly eight years after the signature of
the 2001 Protocol to the Convention on Mutual Assistance in Criminal
Matters it is not yet in force for five Member States, so that
there is still no full cross-border cooperation even on obtaining
details of bank accounts. This is a situation which the EU Counter-terrorism
Coordinator described as "shocking". We think this is
not too strong a word. (paragraph 36)

187. The Government should satisfy themselves
that the United Kingdom is in a position to provide these forms
of cooperation in a timely and effective manner, and should press
other Member States to do likewise. (paragraph 37)

188. It is deplorable that negotiations for an
agreement on mutual legal assistance, begun nearly eight years
ago and concluded over six years ago, should still not have resulted
in an agreement which is in force between the EU and the United
States. We hope the Government will press ahead urgently with
the ratification of the United Kingdom's bilateral agreement,
and encourage other Member States to do likewise. (paragraph 40)

THE COUNCIL OF EUROPE

189. The Government must hasten the procedure
for United Kingdom ratification of the Second Additional Protocol
to the 1959 Council of Europe Convention on Mutual Legal Assistance
in Criminal Matters. (paragraph 42)

190. We doubt whether there was ever any good
reason for the delay in signature by the United Kingdom of the
Warsaw Convention on Laundering, Search, Seizure and Confiscation
of the Proceeds from Crime and on the Financing of Terrorism;
certainly there is now no reason for any further delay. Still
less do we see why a further 18 months should be needed before
ratification. (paragraph 47)

191. The failure to sign and ratify the Warsaw
Convention sends out a negative message about current United Kingdom
commitment to the prevention and control of money laundering and
the financing of terrorism. If the United Kingdom is to preserve,
let alone enhance, its reputation in this sphere, Ministers must
demonstrate the priority they attach to this by setting a clear
timetable for signature and ratification. (paragraph 48)

UNITED NATIONS COOPERATION

192. We believe the case of Kadi and subsequent
cases demonstrate the need for human rights enhancements at UN
Security Council level when the Sanctions Committee is considering
whether to impose sanctions on persons or bodies, or is responding
to requests for de-listing. The Government should press for United
Nations practice to evolve in a manner consistent with the jurisprudence
of the European Court of Justice. (paragraph 54)

FINANCIAL INTELLIGENCE UNITS AND
FIU.NET

193. We agree with the Commission that it is
essential to strengthen operational cooperation among EU FIUs,
and to eliminate the problems which administrative FIUs have with
the exchange of information. We urge the Government to work towards
this end. (paragraph 59)

194. FIU.NET should be a priority project, but
we are far from convinced that this is yet the case. Since all
Member States are bound by the FIU Decision to have FIUs exchanging
information in a secure manner, all should participate in FIU.NET.
(paragraph 64)

195. If the United Kingdom is indeed committed
to making FIU.NET work, the Government must take active steps
to give it the necessary sophistication. (paragraph 65)

196. If FIU.NET is to continue to be financed
from the EU budget, the Commission needs to manage it more proactively
and to ensure that it provides value for money to the Member States
which participate in it. (paragraph 66)

Confiscation of the proceeds
of crime

197. The review of the FATF Recommendations is
a good opportunity to re-examine, not just the text of Recommendation
38, but the manner in which it is implemented, and the way in
which compliance is measured. (paragraph 72)

198. We commend the Commission for its efforts
to increase cooperation among Member States over confiscation
of the proceeds of crime. We urge the Government to take a lead
in driving this agenda forward with renewed vigour. (paragraph
74)

ASSET SHARING AGREEMENTS

199. The Government should give higher priority
to the negotiation of bilateral asset sharing agreements with
non-EU countries not already involved. (paragraph 78)

200. The Framework Decision on the mutual recognition
of confiscation orders was due to be transposed into national
law by 24 November 2008. The United Kingdom is among the States
which have failed to do so. The Government must take immediate
steps to remedy this. Given the importance of the Framework Decision,
the Commission must adopt a robust stance in monitoring its effective
implementation by all Member States, and react swiftly should
delays or problems arise. (paragraph 80)

CIVIL RECOVERY

201. Article 23(5) of the Warsaw Convention,
which requires mandatory cooperation between States on civil recovery,
is yet another reason, if one were needed, why the United Kingdom
should ratify the Convention without delay. (paragraph 89)

202. The Government should give the highest priority
to international cooperation on the confiscation of the proceeds
of crime, whether by post-conviction criminal confiscation or
by civil recovery. (paragraph 91)

203. We welcome the suggestion of the Executive
Secretary of MONEYVAL that the Council of Europe may press the
merits of civil recovery in the review of the FATF Recommendations.
We trust that the Government will support such a move. (paragraph
92)

204. Cooperation in relation to civil recovery
must be given much greater prominence in the current FATF review
of its standards and the associated methodology for assessment
of its members, so that failure to provide this would have a significant
negative impact on compliance ratings for the countries concerned.
(paragraph 93)

205. The Government must devise an overall strategy
for the conclusion of bilateral agreements with third countries,
including asset sharing provisions, and press for their early
negotiation and for their timely and effective entry into force.
(paragraph 95)

The private regulated sector

SUSPICIOUS ACTIVITY REPORTS (SARS)

206. Failure to report a suspicious transaction
based on a minor criminal offence should not be prosecuted; and
this should be achieved, not by a decision that in a particular
case prosecution would not be of public benefit, but by amending
the law so that such a transaction would not need to be reported.
(paragraph 109)

207. Consideration should therefore be given
to amending the Proceeds of Crime Act 2002 to include a de
minimis exclusion. (paragraph 110)

CONSULTATION WITH THE PRIVATE SECTOR

208. We agree with the recommendation of the
EU Counter-terrorism Coordinator that the Commission and Member
States should consider steps to increase the effectiveness of
public-private cooperation on countering terrorist financing,
and we urge the Government and the Commission to take it forward.
We believe this applies equally to AML. (paragraph 113)

FEEDBACK

209. We urge SOCA to intensify its dialogue with
the private sector in order to improve the practical utility of
its guidance, and so to ensure better focus on matters of real
importance. (paragraph 118)

210. It is only by being provided with increased
levels of case by case feedback that the regulated sector will
be persuaded of the value of the efforts it puts into the SARs
regime. (paragraph 122)

211. Where it is clear that particular SARs have
contributed to the success of an AML or CFT operation, and that
feedback on this can be given to the originator of the SARs without
compromising operations, SOCA should make it the practice to do
so in selected cases where they believe that this will demonstrate
the importance of providing such reports. (paragraph 123)

COST/BENEFIT ANALYSIS

212. It is vital that SOCA should make a serious
attempt to calculate the cost/benefit of the reporting of suspicious
activities by the United Kingdom private regulated sector. The
Government must similarly press international bodies to provide
a rigorous cost/benefit analysis. (paragraph 128)

213. We commend the Commission for commissioning
a review of the cost of compliance with financial services regulation,
recognising the importance of attempting to estimate the burden
of compliance. We hope they will take this work forward, in particular
to see whether the benefits of compliance justify the burden.
(paragraph 129)

IS THE BURDEN ON THE PRIVATE SECTOR
DISPROPORTIONATE?

214. One matter to which we expect the Treasury
to pay particular attention in their review of the burden on the
private sector is whether this burden does, as has been claimed,
put the regulated sector at a competitive disadvantage compared
to other countries. (paragraph 132)

THIRD COUNTRY EQUIVALENCE AND SIMPLIFIED
CUSTOMER DUE DILIGENCE

215. We believe that the Government must provide
a definition of equivalence, and allow the regulated sector to
rely on the list of equivalent countries. (paragraph 137)

216. The Government should press for tough and
clear published EU criteria for States to be granted third country
equivalence status, and for a set procedure for them to apply
for inclusion in the list, and for handling such requests. (paragraph
139)

217. There is a need for greater harmonisation
of approach within the FATF when, as with Iran, counter-measures
are called for. The Government should press for this in the present
FATF review of the International Cooperation Review Group process.
(paragraph 145)

Current threats

ALTERNATIVE REMITTANCE SYSTEMS

218. It must be right that Hawala and other alternative
remittance systems should always be treated as a money service
business like any other more formal money service businesses.
The Payment Services Directive should ensure that this happens
across the EU. (paragraph 154)

219. However we believe that by its nature Hawala
is more susceptible to misuse, and that particular care needs
to be taken to ensure that money service businesses and money
transmission agents are made aware of their responsibilities,
and comply with them. This will involve making information and
instructions available in a wide variety of languages. (paragraph
155)

220. The United Kingdom has considerable experience
in regulating Hawala; we recommend that the Government should
actively share this experience with their EU and FATF partners,
and seek to ensure that no vulnerabilities in these systems are
overlooked. (paragraph 156)

THE GLOBAL ECONOMIC CRISIS

221. Measures taken to mitigate the impact of
the economic crisis should not adversely affect AML/CFT controls,
and should be scrutinised to make sure that they do not. Nor should
such measures divert resources away from AML and CFT. (paragraph
162)

PIRACY

222. We have received no evidence to suggest
that the payment of a ransom should be made a criminal offence,
and we do not suggest that the law should be changed. (paragraph
164)

223. It is important to know whether the proceeds
of piracy are being used for terrorist financing, and if so the
order of magnitude of the sums involved. The Government must take
the initiative, if possible in concert with other interested States.
(paragraph 167)

224. We urge the Government to raise this issue
with their EU partners and in the FATF with a view to establishing
the extent of the link between the proceeds of piracy and terrorist
financing, and to warning members of the FATF about these risks.
(paragraph 168)

225. The Government should consider raising in
the FATF the question whether a joint typologies exercise between
the FATF, the Middle Eastern and North African FATF and the Eastern
and Southern Africa Anti-Money Laundering Group would be of use.
(paragraph 169)

226. In every case of piracy where a ransom has
been demanded and the payment is being assembled in the United
Kingdom, those involved have in our view a duty to seek consent
for the payment of the ransom. Not to do so is likely to result
in the commission of a criminal offence. We regard it as an abdication
of responsibility by the Home Office to suggest otherwise. (paragraph
173)

THE SARS DATABASE: DATA PROTECTION
ISSUES

227. The FATF Recommendations do not require
information on the ELMER database of SARs to be made available
other than in connection with serious crimes. Access for other
purposes should be on request to SOCA. (paragraph 182)

228. The Information Commissioner should review
and report on the operation and use of the ELMER database, and
should consider in particular whether the rules for the retention
of data are compatible with the jurisprudence of the European
Court of Human Rights. (paragraph 183)